You have other options to consider before taking out a payday loan.
There’s one particularly good reason to stay away from payday loans: they’re painfully expensive. It’s not uncommon to see a 400% annual percentage rate of interest and fees (APR) on a payday loan, and some lenders have even higher interest rates. While some provinces have regulations surrounding how much can be charged, this maximum cap is still extremely high.
However, there is good news – you have other options.
Before taking out a payday loan, try the following alternatives. They can help solve your short term money needs while keeping you out of long-term debt.
8 other alternatives to consider
1. Ask friends or family for help
It can damage your pride, however you should consider asking your friends or family to help cover your short-term financial needs. They may be more than happy to lend a hand. This type of personal loan often has the advantage of no interest, however you should focus on repaying your friends or relatives promptly, as finances can ruin relationships.
2. Consider an installment loan
You can typically get an installment loan quickly and with lower interest rates and longer repayment terms than a payday loan. Instead of making one lump sum payment at the end of the month, you will make repayments in installments over a set period of time. Lenders may look at your credit score when you apply, however they will more likely be interested in your ability to repay your loan.
3. Consolidate your debt
If high-interest debt is holding you back from meeting your other financial obligations, you might benefit from consolidating that debt. This means borrowing a larger sum of money to pay off multiple debts, then focusing on paying off that one loan. Consolidating your debt reduces the confusion of having multiple payments and may even offer a lower monthly payment while you eliminate your debt. You could save on interest and pay off your debt faster.
4. Look into a credit card cash advance
Cash advances aren’t always the best option because of their high APRs, but if you’re in need of quick cash, the fees and terms may be better than those of a payday loan. It’s often better to take the high interest rate for a cash advance that you can pay off over a longer term. Keep in mind interest rates for credit card cash advances are charged from the moment you withdraw the cash.
5. Find quick ways to make extra cash
If you find yourself just short of cash, you could consider finding a small, quick job that allows you to collect some cash. Car and house sharing, selling unwanted items and market research are a few ways you can bring in money if you have extra time. The effort may pay off double-time: you won’t have to pay interest on a loan, and you could discover a new stream of consistent income.
6. Negotiate with your creditors
At the end of the day, your creditors want to get paid, and they may be willing to work with you to ensure that they do. Contact them and tell them you’re having trouble keeping up with your debt. They may help you create a repayment plan or extend your due date to ease your financial burden. You’d be surprised how many lenders are willing to help you work through your tough financial situation.
7. Get a loan from a bank or a credit union
You may be able to take out a small loan with your bank or credit union. Credit unions especially are known for offering loans at great rates. Furthermore, they’re often more willing to look at additional approval factors besides finances when extending loans, such as how long you’ve held your account with them. Banks tend to have less lenient eligibility criteria when it comes to loans, however they may be willing to work something out with you if you’ve been a long-term client.
8. Seek credit counselling
A credit counsellor, community assistance program or other non-profit can help you create a budget and a debt repayment plan. The main benefit to credit counselling is solving the structural issues that led to your financial problems in the first place, whether it’s your lack of budgeting, your low income or your overspending. You may even have enough savings right away to help you avoid taking out a payday loan in the first place.
When money is tight, the last thing you need is pressure to make payments toward a loan. Instead of taking out a payday loan to cover your existing debt, carefully explore your alternatives to make an informed decision on how to best handle your financial situation before taking out another loan.
Payday loans are available in all provinces and territories across Canada. You should be aware that payday loans are regulated by individual provinces, meaning costs and fees can vary. Ensure that any lender you choose abides by the laws of the place you live.
At the time of writing in July 2018, Newfoundland and Labrador, the Yukon, Nunavut and the Northwest Territories do not have legislation regulating payday loans.